The intersection of technology and economics is on par with past economic revolutions. Similar to the agricultural and industrial revolutions that required a new superstructure of institutions, the emergence of blockchain threatens to upend banking as we know it: the information age is rewriting the rules. Data moving to the cloud has changed how we live our day-to-day lives as we are able to access vast amounts of data at any time and any place. None of this would have happened without the bursting of the dot com bubble and the resultant telecom crash that saw broadband infrastructure selling for pennies on the dollar, allowing broadband to be universally affordable. Think of it as creative destruction on steroids as the information age redefines the laws of economics.
The key takeaway here is not just about innovative technology but also cost. Apple’s launch of the iPhone changed how we consumed data, making data accessible to the masses via the smart phone. AI, machine learning, and blockchain technology will only further push change, as technology turns the financial and banking systems on its head. A repeated theme I fall back on is the tug and pull between technology and cost. You can introduce new innovative technology, but if it is out of reach of the typical user, it will not reach adoption rates to displace current standards. As technology moves from file-based systems to an increasingly complex cloud-based ecosphere of platforms with multiple apps and services layered in over the top, how we measure cost has become equally complex.
ENTERPRISE MARKET
Many market participants were caught off-guard as enterprise activity quickly escalated in January and is projected to run deep into 2018. Digitimes reports that server shipments are expected to increase 8% over 2018 as hyperscalers bulk up on storage in anticipation of the data driven by 5G, IoT, and AI. Data centers in China, a growing data center market, have also been ramping builds. The HDD manufacturers are big beneficiaries of this scale-out, with HDD builds up over 30% from six months ago. HDD manufacturers are reporting tight conditions across all capacities in nearline and mission-critical drives. Most of the hyperscaler demand is focused on 10TB plus capacities, while Chinese data centers are focused on 6TB and 8TB caps. We expect demand for large cap drives to carry into Q2. Demand in the lower cap and SAS drives are a combination of increased demand for low and mid-level servers and product mix issues. HGST has been quite clear about their ceding support for mission-critical drives, with one well-known server builder reporting HGST has told them they will not be supporting their SAS demand, despite continued demand driven by their large installed base.
The SSD market is less clear, as anticipated prices are dropping due to increasing TLC yields. From an open market perspective, TLC demand has been tepid with demand primarily for MLC-based SSD. We have seen authorized suppliers hitting the streets to offload TLC based SSD at increasingly lower prices, which seems to indicate HDD is still benefiting from its cost advantage.
This is not a long-term trend as SSD is better suited to the rigors of the algorithmic computing of AI and machine learning, and that performance advantage will only grow with the adoption of NVMe. However, WD’s and Seagate’s announcement of MAMR and HAMR technology promising 100TB hard drives continue to push the cost advantage of rotating media over SSD. Talk to an insider at a hard drive manufacturer and they will quickly define HDD in terms of cost per terabyte. For a hyperscaler that is buying tens of thousands of drives: it is all about price. Meanwhile, organizations that offer software as a service (SaaS) are focused on user experience, meaning performance. The cost performance equation is not linear, with a variety of variables that affect the cost of storage ownership.
In short, comparing SSD to HDD pricing is not an apples-to apples comparison. For example, a mid-size server builder is paying $184 for a 3.5” 8TB SATA HDD, which works out to $23 a TB. In comparison, an authorized distributor just offered us a 2.5” SATA 960GB enterprise SSD to us at $139 or $140 a TB. The 960GB SSD uses less power, offers better performance and a smaller footprint, yet HDD still offers a considerable cost saving per TB.
Although a simplified comparison, it illustrates the challenges storage designers have to navigate. Cost and performance are the two primary variables, but also to be considered are power consumption, heat, physical footprint, and how the data is being used, which is why we see tiered systems to balance performance against cost. As the SSD manufacturers increasingly transition to new technologies, such as NVMe and the use of AFA with their increasing use of telemetry data to optimize workloads, the cost calculation becomes increasingly complex. Watch for Microsoft project Denali, which will look to move SSD controller functionality to the operating system to manage workloads for improved wear leveling and performance, potentially reducing the complexity of enterprise SSD
PERSONAL COMPUTING
SSD notebook attach rates have exceeded 50% for ODM builds driven by the lower costs of TLC based SSD. Consumers are less concerned about low cost storage than they are about the performance benefits of SSD. Storage consumes less of the notebook or desktop spend in comparison to data centers storage consumption of the total spend. SSD adoption rates will increase as manufacturers are expected to cut prices another 4 to 5% over the next quarter. We have seen prices drop in excess of 40% over the quarter in the open market, with few willing to throw stock on the shelf for fear of catching a falling knife.
As of late, the PC market has been difficult to forecast, with recent swings in build quantities from month to month, and the market is sending mixed signals. First-tier brand vendors saw their combined shipments fall for the second straight month by 28% in January due to seasonality, although the volumes were up 11% compared to a year earlier. However, an insider reported Toshiba is heavy on 500/1TB notebook drives. We are seeing 20k plus lots being offered in the market out of Asia, which seems to indicate notebook sales may be challenged in the upcoming months.
CLOSING THOUGHTS
With recent disclosures around the questionable practices of Cambridge Analytica mining Facebook users’ data and the concern that AI is limiting users’ autonomy by curating their world views, I wonder what our role in defending individual rights is. Will there be a blowback on the new technologies that harness the data driving data center growth? What is our societal role as technologists? It reminds me of the debate between Jesus and the grand inquisitor in Dostoevsky’s Brothers Karamazov, where the inquisitor says man needs rules and that man needs to be led, while Christ leaves man’s choice to his own free will. I would love to hear your thoughts. Please email me at stephen.buckler@horiontechnology.com
